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Iraq Buys Big
Iraq has joined the growing list of countries buying gold for their official reserves, purchasing more than 25 tonnes of the precious metal in the market to beef up the gold reserves of its central bank for the first time in years.
The purchases by Baghdad come as Iran is using gold as a currency to settle import-export transactions with neighbouring countries, including Turkey. But Iraq has so far not disclosed any gold transaction with Tehran.
Analysts said it was unclear whether the purchases showed dealings with Iran or were simply a sign that the Iraqi central bank is diversifying its foreign exchange reserves, as others in emerging countries have done recently.
Iraq joins countries from Russia to Brazil in buying gold to diversify its official reserves this year. According to data released late on Thursday by the International Monetary Fund, Iraq bought gold during August-September, lifting its official precious metals reserves from 5.8 tonnes to 31.07 tonnes.
The so-called official sector — a group that includes central banks, sovereign wealth funds, and other quasi-government entities — has been a significant buyer of gold since 2010, having been a strong seller in the previous 15 years.
The Iraqi additions are among the biggest officially reported so far this year, behind only Russia, Turkey, and Kazakhstan. Some countries have bought gold secretly in the past, including China, disclosing their purchases years later.
The purchases have lifted Iraq in the global ranking of gold holders from 78th to 54th position, according to data from the World Gold Council, the lobby group of the gold industry. Iraq is the first buyer of gold in the Middle East region that has acknowledged its purchases, although the market suspects Saudi Arabia and several regional sovereign wealth funds have also bought gold in the past.
“Having a new buyer in the central bank space, and especially from a new region, is an important development,” said Joni Teves at UBS in London.
Gold has been trading in a relatively narrow band of between $1,500 and $1,800 per troy ounce for the past year. Over the past week, spot gold prices in London fell 2.5 per cent to $1,651 per ounce. On Thursday, gold prices briefly hit their lowest since August, trading at $1,635 per ounce on the spot market.
Weak physical demand, particularly from India and China, has weighed on the gold market for most of the year, analysts said. The weakness from the jewellery sector is so far offsetting bullish financial factors, including ultra-low interests rates in major economies and the worries about the so-called fiscal cliff of automatic tax increases and spending cuts in the US.